For Those of Us Who Don't Have Bailout Options
What better time to talk about financial planning with students than now, when our country is in the throws of trying to salvage our economy – one that’s in trouble for many reasons, not the least of which is an utter lack of budgeting. What do I mean by this? I mean Budgeting 101 – money in (a.k.a. income) must be equal to or greater than money out (a.k.a. expenses).
If students can learn this most basic principle, now, before they graduate from high school, they will be so far ahead of the game. And, best of all – they’re our future leaders and the country’s financial planners!
Let’s start with the basics.
Common Terms
- Income – this is money you earn or receive as an allowance or gift.
- Expense – this is anything you spend money on (gas, movies, food, music, lattes, insurance, school).
- Net – this is what’s left after you deduct your total expenses from your total income. If you have more income, it’s called net income. If you have more expenses, it’s called net loss.
- Wish List – this is the list of items you’d like to be able to afford but can’t on your income. These items might include a car payment or outright purchase of a used car, college tuition and books, a summer trip, dress for the prom or new clothes for back to school.
- Savings – this is money you’ll set aside in a savings account for the items on your wish-list. Sources of savings might also be gifts or income, or they might include income you earn from selling your old clothes and jewelry on EBay or at a garage sale or taking on extra work, such as odd jobs around the neighborhood.
- ATM card – this is like a credit card except it’s your money (meaning that when you use it, the money is coming from your account, not a loan from a bank in the form of credit). You can have an ATM card attached to a checking or a savings account.
- Credit card – personally, I’d skip this one until you get the hang of managing your money. Most of us get into trouble with credit cards – especially in the beginning – because it’s so easy to tell ourselves to go ahead and charge it, we’ll pay it off later. Well, they don’t have an online calculator to tell you what you actually end up paying if you can only make minimum payments (surprise, surprise), but suffice it to say, it’s A LOT!.
Set Up a Spreadsheet
Using a software program, like excel, create your budget. If you don't have access to a computer, you can do it on paper. (Click here to see an example of a budget in a spreadsheet.)
List your expense categories so you can track your expenses and then record the amount you think you spend or plan to spend. This will take some time as you want to really think about what you spend money on. One of the common mistakes it to write down the big items, like car insurance or cell phone, and forget about the small items, such as lattes, haircuts, movies and fast food snacks. It’s the small stuff that can really make your income disappear without your even knowing it’s going! One of your “expense” categories should also be Savings. Sounds kind of weird, but the idea is that you “pay to save” in order to have money to purchase items on your “wish list.”
- List your income source categories and record the amounts you think you’ll earn or receive.
- Total them up, subtract expenses from income and see if you have net loss or net income.
And now for the reality check. If it’s net loss, you’ll have to adjust your expenses or find additional income sources in order to balance. This step is critical. Don’t fall into the trap of saying, “Oh well, I’ll make it up next month with extra babysitting jobs.” Or, “I can get a full-time job this summer when I get out of school.” What happens if you don’t get that summer job or those extra babysitting jobs? Then you’re really in the hole.
Keeping Track
Here’s the part where most people say, “Nah…I’ve got it in my head. I don’t need to do this.” It’s the part where you actually keep track of your income and expenses on a monthly basis. Again, this is an important step, and in the scheme of things, one that should only take about a half hour of your time, per week, TOTAL.
- To get started, you’ll need a check register (which should have come with your bank checks). If you have a debit card tied to your checking account, you will be using that to help keep track.
- Record EVERY transaction in your check register (using your debit card helps you make sure you capture them all). This includes cash as well as ATM purchases and checks.You can use the bank statement you receive (either online or via mail) to make sure you’ve recorded every expense and income source.
- Enter the actual expense and income amounts from your check register to your budget.
- How did you do? Is it a net loss or a net income? This figure, by the way, should equal the balance you show in your check register. If it’s a net loss, you should probably re-think how you’re spending your money or immediately find ways of earning additional money.
For some worksheets on budgeting, credit, and balancing a checkbook, go to the downloads page and download the worksheets from the Part 5: Get a Job! Teens at Work and Money Management DVD.
This all may seem like a big hassle and a huge waste of time, especially because it generally takes a few months to work out all the kinks. But keep at it – at least for 4 months – and see if you don’t make progress. The rewards for your efforts will be significant in the long run (like when you’re old)…and, in the short run (you just may be able to afford that car you’ve wanted far sooner than you’d thought possible).
This article was written by Lisa Frederiksen. Her seventh book, If You Loved Me, You’d Stop! What You Really Need To Know When Your Loved One Drinks Too Much, has just been released. For more information about all of the issues surrounding alcohol abuse/addiction (DUIs, underage drinking, dual diagnoses, co-addictions, codependency and more), please visit her website and blog, www.breakingthecycles.com.